Wayfair sheds light on path for startups

Compared to Worcester, Boston is a mecca of entrepreneurship. But compared to Silicon Valley, Boston is not so significant. At least that’s what I conclude from looking at the relative amounts of money invested in startups in these regions. In the first nine months of last year, Silicon Valley startups got $8.2 billion in venture capital — more than three times Boston’s $2.5 billion.

So I thought it would be interesting to find out how the comparison between Boston and Silicon Valley looks to the founder and chief executive officer of a Boston startup that has raised more venture capital than almost any company I know — $201 million.

Most people would think that if such a startup were selling goods to consumers online, it would be run from San Francisco. Sorry to burst that bubble, but Boston-based Wayfair sells household goods online, and 800 of its 1,200 employees work in Beantown.

A Cornell graduate, Wayfair CEO Niraj Shah said in a Feb. 22 interview that he and his co-founder, Steve Conine, decided to start Wayfair in Boston because they vastly preferred living there over New York City. Mr. Shah decided that Boston had key attributes that made it a place in which Wayfair could grow, including:

•Pillar companies in retailing such as Staples and CVS, from which Wayfair could draw people with retailing expertise;

•Capital. Mr. Shah said Boston is “No. 2 behind Silicon Valley” when it comes to venture capital, and it is a big player in the private equity industry.

•Values. Mr. Shah believes Boston is full of entrepreneurs willing to take a risk to disrupt big markets.

Despite these strengths, Mr. Shah believes Boston could be better. For example, its startup common could use more “$10 billion-plus” publicly traded technology companies, which he views as “great places for people to gain experience and get wealthy through stock options.” In Silicon Valley, he said, startup CEOs are willing to wait “to get a 100 times return on their investment; in Boston, entrepreneurs generally have not yet had a big score, so they sell their companies when they have only made a 10 times return.”

I see an important implication for Worcester’s startup common: It’s a mistake to assume that what works in one region will work everywhere. After all, different cities are at different stages of economic development and have varying resources on which to base future growth.

The global success of a small number of entrepreneurs who started companies after graduating from its local universities — such as Digital Equipment Corp. and EMC — helped Boston’s startup common immensely. Their founders graduated from MIT and Northeastern, respectively. By making many early employees rich after their initial public offerings, these success stories created the raw materials for new startups.

Worcester is at a different stage in the development of its startup common. It has an opportunity to attract entrepreneurs — as Oxford did with IPG Photonics’ CEO, Dr. Valentin Gapontsev — to migrate to Worcester to start their ventures. Worcester might spur the graduates of its universities to start and grow their ventures here to the scale that they can become pillar companies that perpetuate a vital startup common.

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